What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 197 added, 88 removed, 294 unchanged (49% of the section changed)

15 unchanged sentences

The following discussion should be read together with our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and with our financial statements and related notes contained in this Form 10-Q.

Results for the three months ended March 31, 2021, are not necessarily indicative of results that may be attained in the future.

Results for the three and six months ended June 30, 2021, are not necessarily indicative of results that may be attained in the future.

COVID-19 Pandemic

The COVID-19 pandemic resulted in authorities implementing numerous measures to try to contain the virus.

The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus.

These measures may remain in place for a significant period of time, or may be reinstituted after being temporarily lifted, and could adversely affect our business, operations and financial condition as well as the business, operations and financial conditions of our customers and business partners.

4 unchanged sentences

We believe we have sufficient liquidity to continue business operations during this volatile and uncertain period.

We have $642.9 million of available liquidity as of March 31, 2021, consisting of cash on hand and availability under our revolving credit facility.

We have $619.7 million of available liquidity as of June 30, 2021, consisting of cash on hand and availability under our revolving credit facility.

To address the potential long-term financial impacts of the virus, we have delayed non-essential capital spending and operating expenses.

13 unchanged sentences

and Asia Pacific.

Each region has its own globally coordinated sales force, supplemented with local independent reseller and/or distributor networks.

Each region has a globally coordinated sales force, supplemented with local independent reseller and/or distributor networks.

Our products and solutions are used globally by banks, intermediaries, merchants, and billers, such as third-party electronic payment processors, payment associations, switch interchanges, and a wide range of transaction-generating endpoints, including ATMs, merchant point-of-sale (“POS”) terminals, bank branches, mobile phones, tablets, corporations, and internet commerce sites.

11 unchanged sentences

Expectations from both consumers and businesses, are continuing to drive the payments world to more real-time delivery.

This is bolstered by the new data-rich ISO 20022 messaging format, which promises to

deliver greater value to banks and their customers.

This is bolstered by the new data-rich ISO 20022 messaging format, which promises to deliver greater value to banks and their customers.

We are seeing global players with existing schemes working to expand capacity in anticipation of volume growth (further driven by COVID-19) and new payment types.

1 unchanged sentence

The United States is driving real-time payments adoption through Zelle, TCH Real-Time Payments, and the planned FedNow service, while Brazil's PIX was recently launched in November.

ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as the leaders in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

ACI's broad software portfolio, experience, and strategic partnerships with Mastercard, Microsoft, and Mindgate Solutions continue to position us as the leader in real-time payments, helping to drive seamless connectivity, increased security, and end-to-end modernization for organizations throughout the world.

Adoption of cloud technology.

49 unchanged sentences

In the event a significant revision to renewal assumptions is determined to be necessary, prior periods will be adjusted for comparability purposes.

The following table sets forth our 60-month backlog estimate, by reportable segment, as of March 31, 2021, and December 31, 2020 (in millions).

The following table sets forth our 60-month backlog estimate, by reportable segment, as of June 30, 2021, March 31, 2021, and December 31, 2020 (in millions).

Dollar amounts reflect foreign currency exchange rates as of each period end.

March 31, 2021 December 31, 2020

June 30, 2021 March 31, 2021 December 31, 2020

Banks $ 2,248 $ 2,117 $ 2,167

2 unchanged sentences

Total $ 6,181 $ 5,944 $ 6,039

March 31, 2021 December 31, 2020

June 30, 2021 March 31, 2021 December 31, 2020

Committed $ 2,283 $ 2,308 $ 2,447

11 unchanged sentences

The following table presents the condensed consolidated statements of operations, as well as the percentage relationship to total revenues for items included in our condensed consolidated statements of operations (in thousands):

Three Month Period Ended March 31, 2021, Compared to the Three Month Period Ended March 31, 2020

Three Months Ended March 31,

Three Month Period Ended June 30, 2021, Compared to the Three Month Period Ended June 30, 2020

Three Months Ended June 30,

Amount % of Total

14 unchanged sentences

Total operating expenses 286,245 97 % 15,473 6 % 270,772 90 %

Operating income (loss) 3,690 1 % 14,973 (133) % (11,283) (3) %

Operating income 15,424 3 % (13,714) (47) % 29,138 10 %

Other income (expense):

3 unchanged sentences

Total other income (expense) (6,961) (3) % 2,186 (24) % (9,147) (3) %

Loss before income taxes (6,313) (2) % 28,999 (82) % (35,312) (11) %

Income tax benefit (4,368) (2) % 6,517 (60) % (10,885) (4) %

Net loss $ (1,945) — % $ 22,482 (92) % $ (24,427) (7) %

Total revenue for the three months ended March 31, 2021, decreased $6.3 million, or 2%, as compared to the same period in 2020.

Income before income taxes 8,463 — % (11,528) (58) % 19,991 7 %

Income tax expense 1,962 1 % (3,954) (67) % 5,916 2 %

Net income $ 6,501 (1) % $ (7,574) (54) % $ 14,075 5 %

Total revenue for the three months ended June 30, 2021, increased $1.8 million, or 1%, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $3.1 million increase in total revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the three months ended March 31, 2021, decreased $9.4 million, or 3%, as compared to the same period in 2020.

dollar resulted in a $4.3 million increase in total revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the three months ended June 30, 2021, decreased $2.6 million, or 1%, as compared to the same period in 2020.

Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue

5 unchanged sentences

All fees from SaaS and PaaS arrangements that do not qualify for treatment as a distinct performance obligation, which includes set-up fees, implementation or customization services, and product support services, are included in SaaS and PaaS revenue.

SaaS and PaaS revenue increased $2.8 million, or 1%, during the three months ended March 31, 2021, as compared to the same period in 2020.

SaaS and PaaS revenue increased $15.8 million, or 9%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.1 million increase in SaaS and PaaS revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended March 31, 2021, increased $1.7 million, or 1%, as compared to the same period in 2020.

dollar resulted in a $1.5 million increase in SaaS and PaaS revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the three months ended June 30, 2021, increased $14.3 million, or 8%, as compared to the same period in 2020.

• The increase was primarily due to changes in the timing of assessments and due dates by Billers that use the Company's technology to enable customer payments of federal, state and local taxes.

License Revenue

8 unchanged sentences

The Company recognizes revenue in advance of billings for software license arrangements with extended payment terms and adjusts for the effects of the financing component, if significant.

License revenue decreased $6.9 million, or 25%, during the three months ended March 31, 2021, as compared to the same period in 2020.

License revenue decreased $15.4 million, or 31%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $0.4 million increase in license revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, license revenue for the three months ended March 31, 2021, decreased $7.4 million, or 26%, as compared to the same period in 2020.

• The decrease was primarily driven by the timing and relative size of license and capacity events during the three months ended March 31, 2021, as compared to the same period in 2020.

dollar resulted in a $0.4 million increase in license revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, license revenue for the three months ended June 30, 2021, decreased $15.8 million, or 32%, as compared to the same period in 2020.

• The decrease was primarily driven by the timing and relative size of license and capacity events during the three months ended June 30, 2021, as compared to the same period in 2020.

Maintenance Revenue

Maintenance revenue includes standard and premium maintenance and any post contract support fees received from customers for the provision of product support services.

Maintenance revenue decreased $0.9 million, or 2%, during the three months ended March 31, 2021, as compared to the same period in 2020.

Maintenance revenue increased $0.4 million, or 1%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.2 million increase in maintenance revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended March 31, 2021, decreased $2.1 million, or 4%, as compared to the same period in 2020.

dollar resulted in a $2.0 million increase in maintenance revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the three months ended June 30, 2021, decreased $1.6 million, or 3%, as compared to the same period in 2020.

Services Revenue

3 unchanged sentences

These services include new customer implementations as well as existing customer migrations to new products or new releases of existing products.

Services revenue decreased $1.3 million, or 7%, during the three months ended March 31, 2021, as compared to the same period in 2020.

Services revenue increased $1.0 million, or 6%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $0.4 million increase in services revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the three months ended March 31, 2021, decreased $1.6 million, or 9%, as compared to the same period in 2020.

dollar resulted in a $0.4 million increase in services revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the three months ended June 30, 2021, increased $0.6 million, or 3%, as compared to the same period in 2020.

Operating Expenses

Total operating expenses for the three months ended March 31, 2021, decreased $21.3 million, or 7%, as compared to the same period in 2020.

• Total operating expenses for the three months ended March 31, 2021, included $1.2 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

Total operating expenses for the three months ended March 31, 2020, included $8.5 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

Total operating expenses for the three months ended June 30, 2021, increased $15.5 million, or 6%, as compared to the same period in 2020.

• Total operating expenses for the three months ended June 30, 2021, included $3.4 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

Total operating expenses for the three months ended June 30, 2020, included $5.0 million of significant transaction-related expenses associated with the acquisition of Speedpay from The Western Union Company and cost reduction strategies implemented during the period.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $3.4 million increase in total operating expenses during the three months ended March 31, 2021, compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the three months ended March 31, 2021, decreased $17.3 million, or 6%, compared to the same period in 2020.

dollar resulted in a $4.5 million increase in total operating expenses during the three months ended June 30, 2021, compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the three months ended June 30, 2021, increased $12.6 million, or 5%, compared to the same period in 2020.

Cost of Revenue

4 unchanged sentences

Such efforts include project management, delivery, product customization and implementation, installation support, consulting, configuration, and on-site support.

Cost of revenue decreased $6.4 million, or 4%, during the three months ended March 31, 2021, compared to the same period in 2020.

Cost of revenue increased $11.3 million, or 8%, during the three months ended June 30, 2021, compared to the same period in 2020.

• Cost of revenue for the three months ended June 30, 2020, included $2.3 million of significant transaction-related expenses associated with the acquisition of Speedpay.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $1.3 million increase in cost of revenue during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, cost of revenue decreased $7.7 million, or 5%, for the three months ended March 31, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower personnel and related expenses, payment card interchange and processing fees, and travel and entertainment expenses of $4.4 million, $1.5 million, and $1.0 million, respectively.

dollar resulted in a $1.8 million increase in cost of revenue during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $11.7 million, or 8%, for the three months ended June 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher payment card interchange and processing fees of $12.7 million, partially offset by lower personnel and related expenses of $1.0 million.

Research and Development

Research and development (“R&D”) expenses are primarily human resource costs related to the creation of new products, improvements made to existing products as well as compatibility with new operating system releases and generations of hardware.

R&D expense decreased $4.5 million, or 12%, during the three months ended March 31, 2021, as compared to the same period in 2020.

• R&D expense for the three months ended March 31, 2021, included $0.4 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

R&D expense decreased $0.5 million, or 2%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• R&D expense for the three months ended June 30, 2021, included $0.5 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

R&D expense for the three months ended June 30, 2020, included $0.3 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $0.6 million increase in R&D expense during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense decreased $5.5 million, or 14%, for the three months ended March 31, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower personnel and related expenses and professional fees of $3.6 million and $1.3 million, respectively.

dollar resulted in a $0.8 million increase in R&D expense during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, R&D expense decreased $1.6 million, or 4%, for the three months ended June 30, 2021, as compared to the same period in 2020, primarily due to lower personnel and related expenses.

Selling and Marketing

3 unchanged sentences

Marketing costs include costs incurred to promote the Company and its products, perform or acquire market research to help the Company better understand impending changes in customer demand for and of our products, and the costs associated with measuring customers’ opinions toward the Company, our products and personnel.

Selling and marketing expense decreased $1.9 million, or 6%, during the three months ended March 31, 2021, as compared to the same period in 2020.

Selling and marketing expense increased $4.2 million, or 17%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $0.6 million increase in selling and marketing expense during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense decreased $2.5 million, or 8%, for the three months ended March 31, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower travel and entertainment expenses and personnel and related expenses of $1.7 million and $0.5 million, respectively.

dollar resulted in a $0.8 million increase in selling and marketing expense during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $3.4 million, or 14%, for the three months ended June 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher personnel and related expenses and professional fees of $2.4 million and $1.0 million, respectively.

General and Administrative

General and administrative expenses are primarily human resource costs including executive salaries and benefits, personnel administration costs, and the costs of corporate support functions such as legal, administrative, human resources, and finance and accounting.

General and administrative expense decreased $8.2 million, or 23%, during the three months ended March 31, 2021, as compared to the same period in 2020.

• General and administrative expenses for the three months ended March 31, 2021, included $0.8 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

General and administrative expenses for the three months ended March 31, 2020, included $8.5 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

General and administrative expense increased $2.2 million, or 7%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• General and administrative expenses for the three months ended June 30, 2021, included $2.9 million of significant transaction-related expenses and cost reduction strategies implemented during the period.

General and administrative expenses for the three months ended June 30, 2020, included $2.5 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.

• The impact of foreign currencies strengthening against the U.S.

dollar resulted in a $0.5 million increase in general and administrative expense during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense decreased $0.9 million, or 3%, for the three months ended March 31, 2021, as compared to the same period in 2020, primarily due to a decrease in personnel and related expenses of $3.6 million, partially offset by an increase in professional fees of $2.7 million.

dollar resulted in a $0.7 million increase in general and administrative expense during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense increased $1.1 million, or 4%, for the three months ended June 30, 2021, as compared to the same period in 2020, primarily due to higher personnel and related expenses.

Depreciation and Amortization

Depreciation and amortization decreased $0.3 million, or 1%, during the three months ended March 31, 2021, as compared to the same period in 2020.

Depreciation and amortization decreased $1.6 million, or 5%, during the three months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $0.4 million increase in depreciation and amortization during the three months ended March 31, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $0.7 million, or 2%, for the three months ended March 31, 2021, as compared to the same period in 2020.

dollar resulted in a $0.5 million increase in depreciation and amortization during the three months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $2.1 million, or 6%, for the three months ended June 30, 2021, as compared to the same period in 2020.

Other Income and Expense

Interest expense for the three months ended March 31, 2021, decreased $5.7 million, or 33%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest expense for the three months ended June 30, 2021, decreased $2.9 million, or 20%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest income includes the portion of software license fees paid by customers under extended payment terms that is attributed to the significant financing component.

Interest income for the three months ended March 31, 2021 was flat compared to the same period in 2020.

Interest income for the three months ended June 30, 2021 was flat compared to the same period in 2020.

Other, net is primarily comprised of foreign currency transaction gains and losses.

Other, net was $1.4 million and $9.8 million of expense for the three months ended March 31, 2021 and 2020, respectively.

Other, net was $1.4 million and $2.0 million of income for the three months ended June 30, 2021 and 2020, respectively.

See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

RESULTS OF OPERATIONS

Six Month Period Ended June 30, 2021, Compared to the Six Month Period Ended June 30, 2020

Six Months Ended June 30,

Amount % of Total

Revenue $ Change

vs 2020 % Change

vs 2020 Amount % of Total

Software as a service and platform as a service $ 392,074 67 % $ 18,551 5 % $ 373,523 63 %

License 55,929 9 % (22,336) (29) % 78,265 13 %

Maintenance 105,518 18 % (511) — % 106,029 18 %

Services 33,334 6 % (244) (1) % 33,578 6 %

Total revenues 586,855 100 % (4,540) (1) % 591,395 100 %

Operating expenses:

Cost of revenue 318,099 54 % 4,916 2 % 313,183 53 %

Research and development 69,543 12 % (5,059) (7) % 74,602 13 %

Selling and marketing 56,798 10 % 2,260 4 % 54,538 9 %

General and administrative 59,712 10 % (5,972) (9) % 65,684 11 %

Depreciation and amortization 63,589 11 % (1,944) (3) % 65,533 11 %

Total operating expenses 567,741 97 % (5,799) (1) % 573,540 97 %

Operating income 19,114 3 % 1,259 7 % 17,855 3 %

Other income (expense):

Interest expense (22,735) (4) % 8,578 (27) % (31,313) (5) %

Interest income 5,719 1 % (135) (2) % 5,854 1 %

Other, net 52 — % 7,769 (101) % (7,717) (1) %

Total other income (expense) (16,964) (3) % 16,212 (49) % (33,176) (5) %

Income (loss) before income taxes 2,150 — % 17,471 (114) % (15,321) (2) %

Income tax benefit (2,406) — % 2,563 (52) % (4,969) (1) %

Net income (loss) $ 4,556 — % $ 14,908 (144) % $ (10,352) (1) %

Total revenue for the six months ended June 30, 2021, decreased $4.5 million, or 1%, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $7.4 million increase in total revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, total revenue for the six months ended June 30, 2021, decreased $11.9 million, or 2%, compared to the same period in 2020.

Software as a Service (“SaaS”) and Platform as a Service (“PaaS”) Revenue

SaaS and PaaS revenue increased $18.6 million, or 5%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in $2.6 million increase in SaaS and PaaS revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, SaaS and PaaS revenue for the six months ended June 30, 2021, increased $15.9 million, or 4%, compared to the same period in 2020.

• The increase was primarily due to changes in the timing of assessments and due dates by Billers that use the Company's technology to enable customer payments of federal, state, and local taxes.

License Revenue

License revenue decreased $22.3 million, or 29%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $0.8 million increase in license revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, license revenue for the six months ended June 30, 2021, decreased $23.1 million, or 30%, compared to the same period in 2020.

• The decrease was primarily driven by the timing and relative size of license and capacity events during the six months ended June 30, 2021, as compared to the same period in 2020.

Maintenance Revenue

Maintenance revenue decreased $0.5 million during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $3.0 million increase in maintenance revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, maintenance revenue for the six months ended June 30, 2021, decreased $3.5 million, or 3%, compared to the same period in 2020.

Services Revenue

Services revenue decreased $0.2 million, or 1%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $1.0 million increase in services revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, services revenue for the six months ended June 30, 2021, decreased $1.2 million, or 4%, compared to the same period in 2020.

Operating Expenses

Total operating expenses for the six months ended June 30, 2021, decreased $5.8 million, or 1%, as compared to the same period in 2020.

• Total operating expenses for the six months ended June 30, 2021, included $4.6 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

Total operating expenses for the six months ended June 30, 2020, included $13.5 million of significant transaction-related expenses associated with the acquisition of Speedpay and cost reduction strategies implemented during the period.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $7.9 million increase in total operating expenses for the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, total operating expenses for the six months ended June 30, 2021, decreased $4.7 million, or 1%, compared to the same period in 2020.

Cost of Revenue

Cost of revenue increased $4.9 million, or 2%, during the six months ended June 30, 2021, compared to the same period in 2020.

• Cost of revenue for the six months ended June 30, 2020, included $2.3 million of significant transaction-related expenses associated with the acquisition of Speedpay.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $3.1 million increase in cost of revenue during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, cost of revenue increased $4.1 million, or 1%, for the six months ended June 30, 2021, as compared to the same period in 2020.

• The increase was primarily due to higher payment card interchange and processing fees of $11.2 million, partially offset by lower personnel and related expenses of $7.1 million.

Research and Development

R&D expense decreased $5.1 million, or 7%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• R&D expense for the six months ended June 30, 2021, included $0.9 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

R&D expense for the six months ended June 30, 2020, included $0.3 million of significant transaction-related expenses and cost reduction strategies implemented during the period.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $1.4 million increase in R&D expense during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related items and foreign currency, R&D expense decreased $7.1 million, or 9%, for the six months ended June 30, 2021, as compared to the same period in 2020.

• The decrease was primarily due to lower personnel and related expenses and professional fees of $5.8 million and $1.3 million, respectively.

Selling and Marketing

Selling and marketing expense increased $2.3 million, or 4%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $1.4 million increase in selling and marketing expense for the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, selling and marketing expense increased $0.9 million, or 2%, for the six months ended June 30, 2021, as compared to the same period in 2020, primarily due to higher professional fees.

General and Administrative

General and administrative expense decreased $6.0 million, or 9%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• General and administrative expenses for the six months ended June 30, 2021 included $3.7 million of expenses related to significant transaction and cost reduction strategies implemented during the period.

General and administrative expense for the six months ended June 30, 2020, included $11.0 million of significant transaction-related expenses associated with cost reduction strategies implemented during the period.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $1.1 million increase in general and administrative expenses during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of significant transaction-related expenses and foreign currency, general and administrative expense increased $0.3 million, for the six months ended June 30, 2021, as compared to the same period in 2020.

Depreciation and Amortization

Depreciation and amortization decreased $1.9 million, or 3%, during the six months ended June 30, 2021, as compared to the same period in 2020.

• The impact of certain foreign currencies strengthening against the U.S.

dollar resulted in a $0.9 million increase in depreciation and amortization expense during the six months ended June 30, 2021, as compared to the same period in 2020.

• Adjusted for the impact of foreign currency, depreciation and amortization decreased $2.8 million, or 4%, for the six months ended June 30, 2021, as compared to the same period in 2020.

Other Income and Expense

Interest expense for the six months ended June 30, 2021, decreased $8.6 million, or 27%, as compared to the same period in 2020, primarily due to lower comparative debt balances.

Interest income for the six months ended June 30, 2021, decreased $0.1 million, or 2%, as compared to the same period in 2020.

Other, net was $0.1 million of income and $7.7 million of expense for the six months ended June 30, 2021 and 2020, respectively.

Foreign currency loss was higher in 2020 due to the market volatility in the wake of the COVID-19 pandemic.

See Note 10, Income Taxes, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Segment Results

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The following is selected financial data for our reportable segments for the periods indicated (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Banks $ 114,051 $ 125,386 $ 209,968 $ 231,207

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Other, net 1,434 2,041 52 (7,717)

Loss before income taxes $ (6,313) $ (35,312)

Banks Segment Adjusted EBITDA decreased $5.2 million for the three months ended March 31, 2021, compared to the same period in 2020, due to a $9.9 million decrease in revenue primarily related to a decrease in license revenues, partially offset by a $4.7 million decrease in cash operating expense primarily related to personnel and related expenses and travel and entertainment expenses.

Merchants Segment Adjusted EBITDA increased $8.3 million for the three months ended March 31, 2021, compared to the same period in 2020, due to a $6.9 million increase in revenue primarily in SaaS and PaaS revenues and a $1.4 million decrease cash operating expense primarily related to personnel and related expenses and travel and entertainment expenses.

Billers Segment Adjusted EBITDA increased $3.8 million for the three months ended March 31, 2021, compared to the same period in 2020, due to a $7.1 million decrease in cash operating expense for personnel and related expenses and payment card interchange and other processing fees, partially offset by a $3.3 million decrease in SaaS and PaaS revenues.

Income (loss) before income taxes $ 8,463 $ 19,991 $ 2,150 $ (15,321)

Banks Segment Adjusted EBITDA decreased $13.9 million for the three months ended June 30, 2021, compared to the same period in 2020, due to a $11.3 million decrease in revenue, primarily license revenue, and a $2.6 million increase in cash operating expense.

Merchants Segment Adjusted EBITDA increased $0.2 for the three months ended June 30, 2021, compared to the same period in 2020, due to a $0.1 million increase in revenue and a $0.1 million decrease in cash operating expense.

Billers Segment Adjusted EBITDA increased $0.3 for the three months ended June 30, 2021, compared to the same period in 2020, due to a $13.0 million increase in SaaS and PaaS revenue, partially offset by a $12.7 million increase in cash operating expense, primarily due to higher payment card interchange and processing fees.

Banks Segment Adjusted EBITDA decreased $19.2 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $21.2 million decrease in revenue, primarily license revenue, partially offset by a $2.1 million decrease in cash operating expense, primarily due to lower travel and entertainment expenses.

Merchants Segment Adjusted EBITDA increased $8.5 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $7.0 million increase in revenue, primarily SaaS and PaaS revenue, and a $1.5 million decrease in cash operating expense, primarily due to lower personnel and related expenses.

Billers Segment Adjusted EBITDA increased $4.1 million for the six months ended June 30, 2021, compared to the same period in 2020, due to a $9.7 million increase in SaaS and PaaS revenue, partially offset by a $5.6 million increase in cash operating expense, primarily due to higher payment card interchange and processing fees.

Liquidity and Capital Resources

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The following table sets forth our available liquidity for the dates indicated (in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 146,213 $ 165,374

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Total liquidity $ 619,713 $ 608,874

The increase in total liquidity is primarily attributable to positive operating cash flows of $70.1 million, partially offset by $12.4 million of payments to purchase property and equipment and software and distribution rights, $15.0 million of repayments on the Revolving Credit Facility, and $9.7 million of repayments on the Term Loans

The increase in total liquidity is primarily attributable to positive operating cash flows of $108.2 million, partially offset by $39.4 million of payments related to stock repurchases, $23.7 million of payments to purchase property and equipment and software and distribution rights, $30.0 million of repayments on the Revolving Credit Facility, and $19.5 million of repayments on the Term Loans.

The Company and ACI Payments, Inc., a wholly owned subsidiary, maintain a $75.0 million uncommitted overdraft facility with Bank of America, N.A.

The overdraft facility acts as a secured loan under the terms of the Credit Agreement to provide an additional funding mechanism for timing differences that can occur in the bill payment settlement process.

As of March 31, 2021, the full $75.0 million was available.

As of June 30, 2021, the full $75.0 million was available.

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.

As of March 31, 2021, we had $184.4 million of cash and cash equivalents, of which $90.7 million was held by our foreign subsidiaries.

As of June 30, 2021, we had $146.2 million of cash and cash equivalents, of which $49.4 million was held by our foreign subsidiaries.

If these funds were needed for our operations in the U.S., we may potentially be required to accrue and pay foreign and U.S.

state income taxes to repatriate these funds.

As of March 31, 2021, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

As of June 30, 2021, only the earnings in our Indian foreign subsidiaries are indefinitely reinvested.

The earnings of all other foreign entities are no longer indefinitely reinvested.

We are also permanently reinvested for outside book/tax basis difference related to foreign subsidiaries.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of March 31, 2021.

These outside basis differences could reverse through sales of the foreign subsidiaries, as well as various other events, none of which are considered probable as of June 30, 2021.

The following table sets forth summarized cash flow data for the periods indicated (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used by):

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Cash Flows from Operating Activities

Net cash flows provided by operating activities during the three months ended March 31, 2021, were $70.1 million as compared to $57.5 million during the same period in 2020.

Net cash flows provided by operating activities during the six months ended June 30, 2021, were $108.2 million as compared to $125.5 million during the same period in 2020.

Net cash provided by operating activities primarily consists of net income adjusted to add back depreciation, amortization, and stock-based compensation.

Cash flows provided by operating activities were $12.6 million higher for the three months ended March 31, 2021, compared to the same period in 2020, primarily due to higher cash earnings.

Cash flows provided by operating activities were $17.3 million lower for the six months ended June 30, 2021, compared to the same period in 2020, primarily attributable to the timing of working capital.

Our current policy is to use our operating cash flow primarily for funding capital expenditures, lease payments, debt repayments, stock repurchases, and acquisitions.

Cash Flows from Investing Activities

During the first three months of 2021, we used cash of $12.4 million to purchase software, property, and equipment, as compared to $10.1 million during the same period in 2020.

During the first six months of 2021, we used cash of $23.7 million to purchase software, property, and equipment, as compared to $25.7 million during the same period in 2020.

Cash Flows from Financing Activities

Net cash flows used by financing activities for the three months ended March 31, 2021, were $38.7 million as compared to $60.8 million during the same period in 2020.

During the first three months of 2021, we repaid $15.0 million on the Revolving Credit Facility and $9.7 million on the Term Loans.

In addition, we used $14.2 million for the repurchase of stock-based compensation awards for tax withholdings.

Net cash flows used by financing activities for the six months ended June 30, 2021, were $103.3 million as compared to $100.2 million during the same period in 2020.

During the first six months of 2021, we repaid $30.0 million on the Revolving Credit Facility and $19.5 million on the Term Loans.

In addition, we used $39.4 million to repurchase common stock and $14.8 million for the repurchase of stock-based compensation awards for tax withholdings.

We also received proceeds of $8.7 million from the exercise of stock options and the issuance of common stock under our 2017 Employee Stock Purchase Plan, as amended.

During the first three months of 2020, we repaid $39.0 million on the Revolving Credit Facility and $9.7 million on the Initial Term Loan, partially offset by proceeds of $30.0 million from our Revolving Credit Facility.

During the first six months of 2020, we repaid a net $39.0 million on the Revolving Credit Facility and $19.5 million on the Initial Term Loans.

In addition, we used $28.9 million to repurchase common stock and $11.1 million for the repurchase of stock-based compensation awards for tax withholdings.

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We believe our existing sources of liquidity, including cash on hand and cash provided by operating activities, will satisfy our projected liquidity requirements, which primarily consists of working capital and debt service requirements, for the next twelve months and foreseeable future.

As of March 31, 2021, we had $40.0 million and $707.4 million outstanding under our Revolving Credit Facility and Term Loans, respectively, with up to $458.5 million of unused borrowings under the Revolving Credit Facility, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement.

The interest rate in effect for the Credit Facility as of March 31, 2021, was 2.11%.

As of March 31, 2021, we also had $400.0 million outstanding for the 2026 Notes.

As of June 30, 2021, we had $25.0 million and $697.6 million outstanding under our Revolving Credit Facility and Term Loans, respectively, with up to $473.5 million of unused borrowings under the Revolving Credit Facility, as amended, and up to $1.5 million of unused borrowings under the Letter of Credit agreement.

The interest rate in effect for the Credit Facility as of June 30, 2021, was 2.10%.

As of June 30, 2021, we also had $400.0 million outstanding for the 2026 Notes.

See Note 3, Debt, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Stock Repurchase Program

There were no shares repurchased under the program during the three months ended March 31, 2021.

We repurchased 1,000,000 shares for $39.4 million under the program during the six months ended June 30, 2021.

Under the program to date, we have repurchased 47,357,495 shares for approximately $651.7 million.

As of March 31, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $112.1 million.

As of June 30, 2021, the maximum remaining amount authorized for purchase under the stock repurchase program was approximately $72.7 million.

See Note 6, Common Stock and Treasury Stock, to our unaudited condensed consolidated financial statements in Part I of this Form 10-Q for additional information.

Contractual Obligations and Commercial Commitments

For the three months ended March 31, 2021, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2020, other than as noted below.

For the six months ended June 30, 2021, there have been no material changes to the contractual obligations and commercial commitments disclosed in Item 7 of our Form 10-K for the fiscal year ended December 31, 2020, other than as noted below.

Miami Facility Lease

During the three months ended March 31, 2021, we entered into a 10-year facility lease for our new headquarters in Miami, Florida.

During the six months ended June 30, 2021, the 10-year facility lease for our new headquarters in Miami, Florida commenced.

In recognition of the lease an operating lease asset of $12.9 million and operating lease liability of $15.2 million was incurred.

These amounts are included within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the condensed consolidated balance sheet as of June 30, 2021.

Microsoft Azure Agreement

During the six months ended June 30, 2021, we entered into a five-year, $45 million Microsoft Azure server and cloud commitment.

Critical Accounting Estimates

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• Accounting for Income Taxes

During the three months ended March 31, 2021, there were no significant changes to our critical accounting policies and estimates.

During the six months ended June 30, 2021, there were no significant changes to our critical accounting policies and estimates.

Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December 31, 2020, for a more complete discussion of our critical accounting policies and estimates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis